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Trump Starts Probe Into Aluminum That China Calls Protectionist

The Trump administration, invoking powers the U.S. hasn’t used in more than a quarter century, began a probe into Chinese aluminum imports that could lead to tariffs.

The Commerce Department is taking the unusual step of initiating the case itself, rather than going through the regular route of starting an investigation based on petitions filed by U.S. companies. Shares in Alcoa Corp. and Century Aluminum Co. jumped on Tuesday.

The investigation covers imports in common alloy sheet, which totaled more than $600 million last year, and was initiated using authority granted by the Tariff Act of 1930, the Commerce Department said Tuesday in a statement. China responded Wednesday by saying the move was “rare in the history of international trade.”

Earlier this year, the U.S. began looking into limits on aluminum and steel imports on the grounds of national security. And in August, the Commerce Department announced the U.S. would seek to impose duties on imports of aluminum foil from China, arguing that state subsidies for the domestic industry unfairly disadvantaged American producers.

“China is strongly dissatisfied about the probe which shows the U.S.’s protectionist inclination,” Commerce Ministry official Wang Hejun said in a statement on the ministry’s website. “It will hurt the interests of both sides by deliberately obstructing the normal order of the bilateral aluminum trade,” Wang said, adding that China will take necessary measures to defend the legal rights of Chinese companies.

Chinese Shipments

The U.S. will import about 425,000 metric tons of common alloy aluminum sheet from China this year, said Jorge Vazquez, the managing director of Austin, Texas-based Harbor Intelligence. This investigation “was logical after the implementation of duties on foil, both countervailing duties and anti-dumping duties,” he said said Tuesday by phone. “If this happens, it will probably increase significantly the chances of domestic capacity expanding here in the U.S.”

That figure would be 1.3% of China’s primary aluminum output of 31.9 million tons in 2016. Aluminum prices are up 25% this year, helped by China’s crackdown on illegal smelters as well as production curbs to reduce pollution. Higher domestic prices drove overseas shipments in October to their lowest levels since February.

Cracking Down

Tuesday’s announcement is the latest sign the Trump administration plans to crack down on what it sees as China’s efforts to flood global markets with cheap metals. U.S. Commerce Secretary Wilbur Ross has said his department would be more willing to self-initiate trade cases against other countries.

President Donald Trump pledged during the election to get tougher on China, complaining that its mercantilist policies contributed to the loss of manufacturing jobs in the U.S. But the Trump administration has so far refrained from following through on that threat.

“President Trump made it clear from day one that unfair trade practices will not be tolerated under this administration, and today we take one more step in fulfilling that promise,” Ross said in the statement.

Century Aluminum erased earlier losses to climb 7.3% in New York Tuesday, the biggest gain since August. Alcoa, which had been down as much as 2%, ended the session up 3%, while downstream aluminum producer Constellium NV rose 1%. In Hong Kong, shares of Aluminum Corp. of China Ltd., the listed unit of the nation’s top state-owned smelter, fell 1.7% on Wednesday.

Security Factor

In April, Trump directed the Commerce Department to investigate whether imports of aluminum threaten America’s national security. In doing so, the president invoked the seldom-used Section 232 of the 1962 Trade Expansion Act, which gives him power to impose tariffs on products that present a security risk. However, Trump has yet to decide whether to take action.

Vazquez at Harbor Intelligence says he thinks the self-initiated probe will effectively eliminate chances of Trump following through with 232.

“I believe that this investigation reduces even further in my view the chances of duties on primary aluminum via Section 232, because its complaints are focused on China,” he said.